Mr. Dan McConnell reports

THE NORTH WEST COMPANY INC. ANNOUNCES FOURTH QUARTER EARNINGS AND A QUARTERLY DIVIDEND

The North West Company Inc. has released its unaudited financial results for the fourth quarter ended Jan. 31, 2024, and released its 2023 annual report and annual information form. The annual report includes the company's annual audited consolidated financial statements, and management's discussion and analysis for the year ended Jan. 31, 2024. These documents are available on the company's profile on the SEDAR+ website and on the company's website. It also announced that the board of directors has declared a dividend of 39 cents per share to be paid on April 29, 2024, to shareholders of record on April 18, 2024.

Chief executive officer comments on fourth-quarter results and annual results

"The results in the quarter reflect continued momentum in our Canadian operations," said Dan McConnell, president and CEO. "Over all, I am pleased with the results for the year considering the impact of lower income support payments for customers in our international operations and the wildfires in Canada, and I am encouraged by the progress we are making from our focus on operational excellence."

Fourth quarter and annual results

The table entitled "Selected fourth quarter and annual information" provides a summary of selected information for the 2023 fourth quarter and annual results. Further information on the fourth quarter and annual financial performance is provided in the 2023 annual report available on the company's website or on SEDAR+.

Annual highlights:

• Six new stores were opened, four in Canada and two in international operations;
• Sales increased 5.1 per cent;
• Net earnings increased $8.5-million or 6.7 per cent;
• Return on average equity was 19.9 per cent;
• Return on net assets was 17.7 per cent;
• Debt-to-equity was 0.40 at Jan. 31, 2024, and has remained below 1.0 since 2000;
• Quarterly dividends increased one cent per share, or 2.6 per cent, to 39 cents per share in September, 2023, and annual dividends per share have increased 3.2 per cent on a compound annual growth basis over the past 10 years.

Fourth quarter results

Consolidated fourth quarter sales

Sales for the quarter increased 1.3 per cent to $643.1-million led by same-store sales gains in Canadian operations and the impact of new stores in Canadian and international operations. These factors were partially offset by the loss of the company's store in Fox Lake, Alta., in the second quarter due to wildfire and the closure of the company's CUL (Cost-U-Less) store in Curacao, Netherlands, in the first quarter. Excluding the foreign exchange impact, consolidated sales increased 1.6 per cent, with food sales increasing 1.2 per cent, and general merchandise and other sales increasing 2.8 per cent. Same-store sales were up 1.4 per cent compared with the fourth quarter last year, as a 3.7-per-cent increase in same-store sales in Canadian operations more than offset a 2-per-cent decrease in same-store sales in international operations. On a same-store basis, food sales increased 2 per cent and general merchandise sales decreased 1.9 per cent.

Gross profit

Gross profit increased 6.7 per cent due to sales gains and a 171 basis point increase in gross profit rate compared with last year. The increase in gross profit rate was largely due to changes in sales blend, an increase in the airline gross profit rate in Canadian operations and lower markdowns on seasonal merchandise compared with last year. A higher pass through of cost inflation in retail prices compared with last year and a lower blend of CUL sales, which have a lower gross profit rate consistent with a warehouse format were also factors.

Selling, operating and administrative expenses

Selling, operating and administrative expenses increased $9.6-million compared with last year and were up 120 basis points as a percentage to sales. The increase in expenses is largely due to cost inflation impacts, including higher staff costs, new store expenses, an increase in depreciation and higher incentive plan costs. These factors were partially offset by the Fox Lake fire loss and CUL store closure previously noted.

Earnings from operations and EBITDA (earnings before interest, taxes, depreciation and amortization)

Earnings from operations, or earnings before interest and taxes (EBIT), increased $3.9-million, or 8.1 per cent, to $51.7-million compared with $47.8-million last year and EBITDA increased $5.7-million, or 7.7 per cent, to $79.1-million compared with $73.5-million last year, due to the sales, gross profit and expense factors previously noted. Adjusted EBITDA, which excludes share-based compensation costs increased $6.4-million, or 8.2 per cent, to $83.7-million compared with $77.3-million last year, and as a percentage to sales was 13 per cent compared with 12.2 per cent last year.

Interest expense

Interest expense increased 16.7 per cent to $4.9-million compared with $4.2-million last year. The increase in interest expense is due to higher average debt levels related to amounts drawn on revolving loan facilities and an increase in borrowing costs.

Income tax expense

Income tax expense was $10.8-million compared with $8.5-million last year, and the consolidated effective tax rate was 23.1 per cent compared with 19.5 per cent last year. The increase in the income tax rate was primarily due to the blend of earnings in international operations across various tax rate jurisdictions and the impact of lower global intangible low-taxed income tax last year.

Net earnings

Consolidated net earnings increased $900,000, or 2.5 per cent, to $36-million compared with $35.1-million last year. Net earnings attributable to shareholders were $34.5-million and diluted earnings per share were 71 cents per share compared with 69 cents per share last year due to the factors noted above. Adjusted net earnings, which excludes the impact of the after-tax share-based compensation costs, increased $1.4-million, or 3.8 per cent, to $39.5-million compared with $38.1-million last year, due to earnings gains in Canadian operations which was partially offset by the impact of a higher effective tax rate as previously noted.

Annual results

Consolidated sales

Sales for the year ended Jan. 31, 2024 (FY 2023), increased 5.1 per cent to $2.472-billion compared with $2.353-billion for the year ended Jan. 31, 2023 (FY 2022). The increase in sales compared with 2022 was largely due to same-store sales gains in Canadian operations, the impact of foreign exchange on the translation of international operations sales and new store sales. Higher inflation was also a factor. These factors were partially offset by the loss of the company's store in Fox Lake, Alta., in the second quarter due to wild fire and the closure of our store in Curacao, Netherlands, early in the first quarter this year. Excluding the foreign exchange impact, sales increased 4.2 per cent from 2022.

Gross profit

Gross profit increased 8.2 per cent to $809.4-million compared with $747.9-million last year, due to higher sales and a 96 basis point increase in the gross profit rate. The higher gross profit rate compared with last year was largely due to changes in sales blend and an increase in the airline gross profit rate in Canadian operations resulting from higher third party cargo and passenger business. A higher pass through of cost inflation in retail prices compared with last year and a lower blend of Cost-U-Less sales, which have a lower gross profit rate consistent with a warehouse format, were also factors. These factors were partially offset by higher markdowns and inventory shrink compared with last year.

Selling, operating and administrative expenses

Selling, operating and administrative expenses of $613.5-million increased $45.9-million, or 8.1 per cent, compared with last year and were up 69 basis points as a percentage of sales. The increase in expenses is mainly due to cost inflation impacts, including higher staff costs and fuel-based utility expenses, the impact of foreign exchange on the translation of international operations expenses and new stores. An increase in depreciation, the $3.7-million asset writeoff from the loss of the company's Fox Lake, Alta., store that was destroyed by wild fire and higher annual incentive plan costs were also factors.

Earnings from operations and EBITDA

Earnings from operations or earnings before interest and income taxes increased 8.6 per cent to $195.9-million compared with $180.3-million last year. Earnings before interest, income taxes, depreciation and amortization increased 8.1 per cent to $301.2-million compared with $278.7-million last year. The increase in EBIT and EBITDA compared with last year is due to the sales, gross profit and expense factors previously noted. Adjusted EBITDA, which excludes the impact of share-based compensation and the Fox Lake fire loss, increased $26.2-million, or 9 per cent, to $318-million compared with $291.8-million last year.

Interest expense

Interest expense increased 28.4 per cent to $19.1-million compared with $14.8-million last year. This increase is due to higher average debt levels and borrowing costs.

Income tax expense

Income taxes increased to $42.6-million compared with $39.6-million last year, and the effective tax rate for the year was 24.1 per cent compared with 24 per cent last year. The increase in income tax expense is due to higher earnings.

Net earnings

Consolidated net earnings increased 6.7 per cent to $134.3-million compared with $125.8-million last year. Net earnings attributable to shareholders of the company were $129.4-million compared with $122.2-million last year and diluted earnings per share were $2.67 per share compared with $2.51 per share last year, due to the factors previously noted. Excluding the impact of the share-based compensation and Fox Lake fire loss, adjusted net earnings increased $11-million, or 8.1 per cent, to $147-million compared with $136-million last year.

Other highlights

Modern Slavery Act report

In compliance with the Fighting Against Forced Labour and Child Labour in Supply Chains Act (referred to as Canada's Modern Slavery Act), the company and certain of its subsidiaries will publicly file their joint Modern Slavery Act report for the 2023 fiscal year. The Modern Slavery Act report will be available on the company's website.

Sustainability report 2023

The company's 2023 sustainability report outlines its environmental, social and governance (ESG) strategy. The company's ESG strategy aims to achieve positive change through a shared-value framework that benefits people, the planet and creates strong partnerships for the future. Through its ESG strategy, the company seeks to drive positive change in the communities it serves by supporting their journey for improved health, nutrition and overall quality of life. North West also seeks to improve the experience of its employees by creating a more diverse, equitable and inclusive work environment, where employees can further develop their skills and grow their careers within the company's organization. The sustainability report 2023 is available on the company's website.

Fourth quarter conference call

North West will host a conference call for its fourth quarter results on April 10, 2024, at 1:30 p.m. (Central Time). To access the call, please dial 416-406-0743 or 800-952-5114 with a pass code of 6009195 followed by the pound key. The conference call will be archived and can be accessed by dialling 905-694-9451 or 800-408-3053 with a pass code of 8370096 followed by the pound key on or before May 10, 2024.

About North West Company Inc.

The North West Company, through its subsidiaries, is a leading retailer of food and everyday products and services to rural and developing small population communities in Northern Canada, rural Alaska, the South Pacific and the Caribbean. North West operates 227 stores under the trading names Northern, NorthMart, Giant Tiger, Alaska Commercial Company, Cost-U-Less and RiteWay Food Markets, and has annualized sales of approximately $2.5-billion.

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